Carrying a credit card balance? Here’s how to cure your debt hangover

The holiday season left a trail of debt in its wake. Maybe you spent more than your usual monthly budget on gifts, or festive attire for one — or seven — parties. And then there was the food, and drinks, and maybe a couple of cab rides shuttling you between venues. Chances are, you used your credit card to cover a good chunk of these seasonal expenses — and promised yourself that you’d deal with it all in January.

Well, it’s January now, and it’s time to attend to your bills. But where do you start? Below, some practical advice on how to start getting your finances in order for the new year.

Start by using low balance transfer cards to pay down debt

Credit card debt is nasty stuff. Most cards have average interest rates of 19.99%, which can quickly add hundreds or thousands of dollars to your balance if you’re not careful.

If paying off your debt in a few months isn’t feasible, and you are looking at a long-term payment plan, it might make sense to transfer your debt to a low-interest credit card. Some cards — like the MBNA Platinum Plus Mastercard — even offer 0% interest for the first 12 months.

A balance transfer will usually cost you a small fee. You can weigh that fee against what you would pay in interest on your regular credit card to figure out whether a balance transfer card is right for you.

Know yourself

A good principle when it comes to money is to always know where you stand. Having a clear grasp on how much money you have, how much you’re bringing in, and how much it costs to keep you alive — and comfortable — allows you to plan better.

Desirae Odjick, the face behind personal finance blog Half Banked — and a frequent LowestRates.ca contributor — agrees that financial health begins with self-knowledge. And the best way to develop this knowledge is to track your spending.

“I'm a huge advocate of tracking your spending as one of the best ways you can get started before diving into, like, ‘I'm going to create this super restrictive budget,’” says Odjick, who’s running a Track Your Spending challenge on her blog this month. “You kind of need to know where you’re at first.”

While budgeting apps can help get you into the habit of tracking (Mint, Fudget, Every Dollar, and Daily Budget are just some of the available apps out there), they’re not for everybody — including Odjick.

What she prefers, instead, is to use a simple Excel spreadsheet. Every few days, she’ll take all the receipts that she’s collected or look through her bank statements, and input all the information manually. “That kind of manual process sounds really arduous when you haven't done it before,” she admits. “But it takes all of like a couple of minutes. And just to be active — having to add up the numbers and putting them in myself — kept me really aware.”

Cut things out

After you’ve tracked your spending for a while, patterns will emerge — ones that you may not have noticed before. Maybe you have a tendency to order takeout at work, or take Ubers five nights a week — despite also paying for a monthly public transit pass.

Once you have a clear idea of where your money tends to go, you can start cutting things out. Comb through all the subscription services and memberships that you pay for, and cancel what you don’t actually use; stop spending money on things you tend to buy, but that don’t actually improve your life in a meaningful way. Is a local gym draining a portion of your paycheque each month, even though you haven’t worked out in four months? Cancel your membership. Are you paying for a Netflix account, even though you prefer HBO Go? Nix it.

If you love getting coffee every day — it’s like the best part of your morning, you really treasure it, you really care about the quality of the coffee you’re getting — don’t cut that out of your budget

Odjick says that you have to be honest with yourself in order for this to be sustainable. Although it might seem reasonable to cut out habits that others believe are a waste of money — like buying coffee every morning instead of making it at home — it’s not reasonable if cutting them out isn’t realistic for you and your life.

“If you love getting coffee every day — it’s like the best part of your morning, you really treasure it, you really care about the quality of the coffee you’re getting — don’t cut that out of your budget,” Odjick advises. “I know that getting coffee is this monster in personal finance. It’s the worst thing you can do… but maybe it’s really important to you. And that’s fine. You have to identify what’s important to you and also what’s not important to you.”

And maybe the thing that’s not important to you, is the gym.

Make a budget, and stick to it

Now that you have a clear idea of where your money goes, and a realistic sense of where it shouldn’t — and won’t — end up, you can make a monthly budget.

Everyone’s budget will look different. But in general, it’s helpful to divide your finances into three categories:

• Fixed expenses (this includes things that you always have to pay for each month, like rent, food, insurance, gasoline, debt payments, contributions to your savings account, or public transit passes)
• Variable expenses (things that you may have to pay for this month, but not the next, like a plane ticket for a trip you’re taking)
• Your income

Weigh your expenses against how much you’re bringing in, and adjust so that they even out. And always set aside a certain amount of money for fun (it’s more sustainable, when you’re coming up with this number, to be realistic rather than self-punishing) — and try to stay within that amount.